"There are only two ways of telling the complete truth—anonymously and posthumously."—Thomas Sowell

Thursday, November 17, 2005

Europe: Revitalization Or Decline?

The question that any analyst of Europe asks is whether the E.U. can be revitalized or whether it is fated to continue an incremental downward spiral to marginality. While pundits on both sides of this political equation have opinions, answers aren’t readily available.

All one can look at are signs, but these are available in abundance.

The French who often tell rude jokes about Boring Belgians are now seeing rich French figures who have found their next door neighbor an escape from draconian French taxes. The Halley’s of the Carrefour supermarket chain have settled in Belgium as has Philippe Jaffre former head of Elf Aquitaine, the state oil company.

For those who are obliged to pay at the highest income bracket (80 percent) as well as a “solidarity tax on wealth,” it often means an annual tax bill greater than their income. In order to conceal the effect of onerous taxes, the French government estimates that the flight of capital accounts for a loss of about $2 billion a year while unofficial estimates have it closer to $30 billion.

France obviously needs this tax revenue to support the generous compensation for the unemployed. All an out-of-work person has to do to maintain generous benefits is call in every six months to confirm that no new job has been secured. Prime Minister Dominique de Villepin has proposed giving the unemployed a bonus of $1200 for taking a job, even as the government weighs a three strikes rule - a loss of payments if three job offers are turned down.

When the government tried to make it easier for small companies to lay off workers, thousands of strikes took to the Paris. Apparently French workers don’t realize the easiest place to lose a job is also the easiest place to find a job.

Whenever enlightened French officials discuss the value of privatization, they are obliged to retreat from that position because union leaders refuse to give ground from the commanding heights of the state guided economy.

According to one study the average French pay stub lists more than 40 deductions, compared to two in Britain and four in the United States. The government says it doesn’t want anyone’s tax bill to exceed 60 percent of household income, but as long as it refuses to eliminate the anomalous wealth tax, the proposal is little more than an empty wish.

France, of course, is not alone on the socialist scale. Germany has a minimum wage almost twice as high as the one in France and it also suffers from an unemployment rate of over eleven percent.

Mrs. Merkle’s lead during the recently completed campaign virtually evaporated when she discussed the need for social welfare retrenchment. A dose of the medicine needed to put a charge in the lackluster German economy is still not politically acceptable. As a consequence, the near tie in the election has left Germany without a policy direction and close to political paralysis.

Clearly if things get worse, change might be more readily accepted. Yet the downward slope in Germany with the precarious status of the banks and the intractable high unemployment rate might well have served as a catalyst for reform. But a mandate for change did not emerge from the election.

This analysis, of course, is a snapshot. History, on the other hand, is a montage. Yet a montage is composed of snapshots. What one sees is ominous. Decline is palpable. In fact, the axis of the world’s economy has already shifted from the Atlantic to the Pacific. World shaking events surround us and for most Europeans the news cannot be good.

15 comments:

The European statist does not believe wealth can be created or destroyed--only shared.

Entrepreneurship is a code word for "exploitation," and no tax or regulation can have any negative effect on the size of the economic base. Economies can only grow or shrink due to inexplicable natural cycles of feast and famine.

Therefore, it must be ensured that everyone be given "enough," whatever that is, and no one can have "too much," whatever that is, just to make it "fair." Whatever that is.

I find little to object to in this post. We all know that the French system is broken. I for one, had no idea that the highest tax bracket was 80 percent! Even from my socialist-leaning point of view, that is grossly unfair.

However, there is this from the post: "Germany has a minimum wage almost twice as high as the one in France and it also suffers from an unemployment rate of over eleven percent." There is little evidence that minimum wages cause unemployment. In the United States, locales with living wage requirements experience growth in employment - the theoretical models are not borne out by real life experience. I am sure that Dr. London is correct on the larger scale that there are aspects to the German system that are onerous and overly-burdensome, thereby creating strain on the economy, but it would seem that the minimum wage contention is a broad overgeneralization.

From the internet:"This study, by Dr. Aaron Yelowitz of the University of Kentucky, utilizes government collected data to examine the labor market effects of Santa Fe’s living wage increase. Dr. Yelowitz finds that the living wage in Santa Fe significantly increased unemployment and decreased hours worked for those who were able to keep their job. Even more troubling, this research found that almost the entire negative effect of the living wage was concentrated on the city’s least-skilled and least-educated employees. These are the very individuals the living wage is purportedly helping."

James, would you be astonished to know that the United States once had a top marginal rate of 90%. It was at 75% when Reagan made his massive cuts in the tax rates. Amazingly, revenues increased, even with a new top rate of 34% (that's close if not exact).

Why? Because people stop trying so hard to avoid taxes at lower rates. They are willing to make more and it makes less sense to engage in dodges.

An axiom of economics is that price controls cause shortages. Minimum wage laws are a form of price control on employers, thus a shortage of jobs will result, low wage jobs in particular. This seems intuitive to me. If the minimum wage is such a magical cure-all, why not raise it to $100/hour? Then everyone would be rich! [roll eyes]

Following up on TVD's point, price controls are a form of job protection. They keep higher skilled people employed because lower skilled people cannot compete on price for the work with low skill requirements.

Minimum wage requirements are part of the "wishing makes it so" method of governance. It is worth just so much to an employer to hire a person to do a certain job. If you put a floor above it, the employer will have to ask existing employees to do the task or have the business do less of what it does. The result is trouble for existing employees and an artificial limitation on productive activity. I have no idea why anyone would be stupid enough (and I don't like to speak that way) to endorse the notion.

I have no problem with reasonably low tax brackets for high-income people. My rule of thumb tends to be, "Will the level of tax reduce their quality of life?" Since the CEO of Coca-Cola makes $300 million a year, the man can afford to give up half that and maintain his lifestyle (and his extended family's, for that matter!) What concerns me more is that corporate income-tax share has fallen to ridiculously low levels, to the point that wage-earners (and I'm not talking the CEO of Coca-Cola here!) are carrying almost all of the burden. I love picking on the oil industry, so I'll do it again: ExxonMobile made $10 billion in pure profit last quarter. Know how much tax they paid? $0.00. That's bullhonkey, yo.

It's interesting that Santa Fe had such a negative reaction to living wages. Santa Clara County and San Jose both have living wage requirements and employment increased for those same workers. In fact, Santa Fe is the exception, not the norm.

ExxonMobile made $10 billion in pure profit last quarter. Know how much tax they paid? $0.00. That's bullhonkey, yo.

Agreed. This phony stat pulled out of thin air is bullhonkey.

FACT:Since 1977, governments (fed, state, local) have collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues—more than twice the amount of domestic profits earned by major U.S. oil companies during the same period.

This is on gasoline ALONE. The greedy hog in this equation, the ONLY hog when the entire equation is considered, is the government.

“In the United States, locales with living wage requirements experience growth in employment - the theoretical models are not borne out by real life experience.”

This really isn’t true, it only looks like it is true because generally you are comparing cities to rural areas when using these stats. If you compare comparable city to city employment, with rare exception, cities with lower minimum wage not only have higher employment, but also higher mobility into the city - which should cause unemployment to go up! It’s also better to look at smaller groups. Look at teenage unemployment, uneducated unemployment, immigrant unemployment. The effects are even more skewed in these situations.

In America, we have a very mobile workforce. A better stat to look at would be Job Creation in comparison. We always have employment growth in America, it’s not surprising that cities with higher minimum wage also experience this, however they experience it at a lower level.

When people get laid off in America, they usually move to another city. The cities with the lowest job creation, also have the highest minimum wages - and generally highest standard of living price. If you notice too, calculate minimum wage in Real Dollars and everything changes!

Do you believe companies outsource to save money on wages? If you do, you cannot believe in your post, they use the same exact economic principles.

To understand these principles it’s best to take it to extremes. Remember, economics is not Zero Sum. If someone offered to mow your law for 1 penny a day, would you take the deal? If they offered to do it for $100 a day, would you take the deal?

Also,

“ExxonMobile made $10 billion in pure profit last quarter. Know how much tax they paid? $0.00.”

That’s really not true at all. Plot it into a supply and demand chart and you will see why.

When the government taxes a corporation it can only come from three places. Wages, Price or Supply Chain. So in a sense, you can never tax a corporation, you can only lower wages, increase price, pull money out of the supply chain.

The government taxes Oil at the pump, and it is taken from these three places. It’s actually a better way of taxing, in that the consumer can moreso tell what the tax is. At a corporate income tax level, all the taxes are hidden costs passed on to consumers.

Of that 10 billion, all of it will end up being taxed in some way. The money passed to shareholders will be taxed on capital gain, and dividend. The money passed to employees will be taxed through income and payroll taxes, the money passed to drill more oil, will be taxed throughout the entire supply chain, the money used to actually get the oil to the pump will be taxed at the pump.

It would actually be smarter to tax at only one level. - Say an income tax or a sale tax - because then there would be less hidden costs, and we would actually know how much we are paying in taxes when we buy something.

And if you don’t like Big Oil, you should be happy to know that over the last 25 years, they have paid more in taxes than they have earned. Over a trillion dollars!

Also remember, when money is taxed, it turns over at a lower rate. By keeping the money flowing through the supply chain, it can be taxed at a multiple rate through many different channels.

j-deal, I invite you to look at wage-earner versus corporate share of tax for the last fifty years. You will find that the share of taxes corporations pay is well under 35% - in fact, their share is at the lowest point in that time frame. What we are seeing is the people who can least afford taxes paying the bulk of the taxes.

Is it just me or did your long reply answer the "Big Oil pays no corporate taxes" by entirely avoiding the question? You can go and read the trascripts of the Big Oil execs under oath just last week. They get more tax breaks than they pay in taxes. They even said that they don't need the tax breaks. You're arguing against real life with theory.

Besides, j-deal, isn't your argument basically "We can never actually tax corporations." It's euphemistic double speak masquerading as logic. By your very argument, you argue against the existence of corporations. After all, where's the exchange for the benefit of limited liability if you can't actually tax the corporation?

Of course, conservative arguments about taxes are grounded in ideological blindness in the first place, so I don't actually expect you to get any of that.

"Besides, j-deal, isn't your argument basically "We can never actually tax corporations." It's euphemistic double speak masquerading as logic. By your very argument, you argue against the existence of corporations. After all, where's the exchange for the benefit of limited liability if you can't actually tax the corporation?"

Your first part is right. It is impossible to actually tax corporations, you can only tax “price, wage and supply chain.” A corporation is nothing more than a series of small contracts broken into a large contract.

"Again, you're arguing theory without any attention to what ACTUALLY OCCURS in reality."

What are you talking about here? Please explain to me a way to tax, other than the “wages, supply chain or price?” - price falling into the basic definition of currency.

"where's the exchange for the benefit of limited liability if you can't actually tax the corporation?"

All a corporation does is share liability. It has nothing to do with taxes. Think of it as a large contract being shared by many. Liabilities cannot exceed that contract. Corporations don’t really have anything to do with taxes. They were created by the Dutch in order to share liability between many investors in the original trading companies. The benefit - besides human freedom and all that - can be seen all around you. Look at the what happened to the Dutch after they created Modern Banking. Look at America after we combined Modern Banking with Modern Property rights to create Capitalism. A way of governance is not about financial incentive.

"j-deal, I invite you to look at wage-earner versus corporate share of tax for the last fifty years. You will find that the share of taxes corporations pay is well under 35% - in fact, their share is at the lowest point in that time frame."

Again, I ask you, where does this money come from, if it does not come from Supply Chain, Wages or Price? Take it to an extreme, lets not tax people at all, lets only tax Corporations. Do you think your after tax real income would be smaller, higher or the same? It’s more about hidden costs than anything else. If America was a completely closed society, then it would actually make more sense to only tax corporate profits, or tax income. It would create for a more visible tax structure. However, we don’t live in a closed society, so we must make a competitive society, taking mobility into account.

I do however agree, that oil companies shouldn't get tax breaks, I believe in a pure flat tax.

Also, You stated...

"It's interesting that Santa Fe had such a negative reaction to living wages. Santa Clara County and San Jose both have living wage requirements and employment increased for those same workers. In fact, Santa Fe is the exception, not the norm."

Actually the reverse is true. The living wage was put in place in the San Jose/Santa Clarita area during the dot com boom. So for a year employment increased, then it decreased greatly until it became about 50% higher than the National Average. It didn't really start to come back till last year.

The Reform Club, c. 1915

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